The UK economy could be plunged even deeper into recession with a GDP
contraction of up to 2pc if Greece is forced into a disorderly exit from the
eurozone.

"Our euro area economists have highlighted the possibility of a circa 4pc decline in euro area GDP in the event of a Greek exit. Even with a moderate degree of fiscal loosening, we think that could threaten a circa 2pc decline in UK GDP," warned a report issued by the Bank of America Merrill Lynch.

In that event the Bank of England would have to step in with further quantitative easing, suggests the document, stepping up its existing £325bn programme with a further £200bn.

"The recent political paralysis has now brought Greece to what could prove to be the worst stage of its crisis. UK banks have only very small direct exposures to Greece, but they are heavily intertwined within the broader European banking system."

However, Bank of England policymaker Martin Wealehas said he is sure the UK economy can withstand withdrawal of Greece from the eurozone but that it could be a source of "disturbance", adding that the eurozone is very much still behind UK economy's weakness.

This week the Office for National Statistics announced that the economy had shrunk by 0.3pc in the first quarter of the year, revised further down from the 0.2pc contraction reported in April.

Greece has called a second round of elections for June 17 after politicians failed to form a majority. However, polls suggest that there is an increasing risk of the electorate opting for an anti-austerity government which would cast doubt over further bailout payments from the EU, potentially leading to a forced exit from the eurozone. The Bank of America report predicts that in that scenario Greece would see a GDP contraction of 10pc within a year.

The head of the body which represented holders of Greek bonds in the recent restructuring, Institute of International Finance (IIF), Charles Dallara, has also warned that the world economy would suffer badly. He urged the EU to set up a system to guarantee savers' deposits in banks.

"It is a mistake to think that an exit by Greece from the eurozone will not have a very serious effect on the European banks, on the ECB, on countries like Italy, Spain and Portugal due to contagion," he told Il Sole 24 Ore newspaper. "Furthermore, it would destabilise the whole world economy."